Waterman was born in Providence, Rhode Island to William Henry and Martha Burrill Pearce Waterman; he had a brother, William Clarence Waterman, who survived him. He graduated fromBrown University in 1857 and moved to New York, where for twenty years he kept a studio in the New York University building. His training is unclear; some sources claim that he was entirelyself-taught, while others, including Waterman himself, claim that he either worked with or was influenced by Thomas Hill and William Morris Hunt. Before moving to New York he was part of a group of "art enthusiasts" in Providence, including Thomas Robinson, John N. Arnold, James M. Lewin, and Frederick S. Batcheller.
Though Waterman was primarily a painter of landscapes, he turned his hand to other genres at times during his career.